Carlos Tavares, PSA chairman
The company that owns Peugeot, Citroën and DS has bought General Motors’ European business. Here’s why
It’s clearly big news. Last year, Opel-Vauxhall’s sales in Europe were around the 1.0 million mark and PSA’s at around 1.5m. By combining the two, you get a group that moves well clear of Renault–Nissan into second place in the European sales charts, behind only the Volkswagen Group (3.6m sales in 2016).
PSA’s purchase of Opel-Vauxhall also brings significant economies of scale. The number of vehicle platforms and engines that need to be developed for five brands producing cars competing in the same market segments would be significantly reduced. To that end, PSA has said it will switch over Opel-Vauxhall models to its own platforms as their replacments are launched, and it has taken ownership of GM’s factories in which to build them.
Car makers are under more pressure than ever to make huge investments in the future of their businesses, not least around the issues of reducing emissions and technologies such as autonomous driving. Spreading that investment across more brands for a greater return lessens the risk of that investment in the first place.
Intriguingly, General Motors (GM) has kept hold of one part of its European operation, an R&D facility in Italy that leads diesel engine development. Clearly, GM thinks diesel still has a job to do.
If successful, this deal would solve some long-standing profitability problems for Opel-Vauxhall. Although it is back on track, Opel-Vauxhall often has an air of uncertainty around it. Questions over factories aren’t going to go away, even if they are secure in the short and medium term. These issues will need to be confonted. The Vauxhall nameplate does at least look safe, though, with PSA saying it would respect the heritage of the two brands it has acquired.
Led by boss Carlos Tavares, PSA has returned to profit and is increasing its profit margins all the time. Having an extra 1.0m vehicles a year to add into that formula would be a nice problem to have in accelerating the recovery. A short-term challenge perhaps, but potentially a lucrative one in the long-term.
It’s five years since GM took a 7% stake in PSA, marking the beginning of the collaboration between the two firms. That stake was quickly sold off, but the collaboration continued, and we’re now finally seeing the first fruits of it with two new Vauxhall SUVs, the Peugeot 2008-based Crossland X and the Peugeot 3008-based Grandland X.
Who’s going to lose out? Well, those two SUVs already show that an overlapping platform strategy could lead to a confused product range, at least in the short term. Vauxhall already has an SUV of similar size to the Crossland X in the shape of the Mokka X. Now it has to have another spun off the 2008’s platform to boost the profitability of that car’s underpinnings.
Products could become homogenised. That would leave fewer choices for buyers. Let’s face it: there isn’t too much difference these days between a Volkswagen Golf, Skoda Octavia or Seat Leon when you go beyond the skin-deep stuff, although it hasn’t harmed any of the models in the eyes of the consumer. Peugeot, Citroën, DS, Opel and Vauxhall could face a similar problem if the brands aren’t positioned clearly enough. This, in particular, is a challenge that Tavares will need to confront.
Clearly, the unions will continue to have something to say about the deal regarding the long-term prospects of multiple factories producing broadly similar cars and they will be seeking further assurances now the fog and rumour around the deal’s potential has cleared into one involving pen being put to paper. You suspect something will have to give, and closer to home, Peugeot has history in abandoning its UK manufacturing base.
Such a large investment from PSA could actually unleash Opel-Vauxhall to reach its full potential. Just look at what new ownership has done for Jaguar Land Rover under Tata, and Volvo under Geely. Each was moved from being a smaller cog in the vast Ford empire to a larger one under much more focused ownership, and each has thrived since. Who’s to say Opel-Vauxhall, managed by a company down the road rather than on another continent, and therefore one that’s intrinsically more in tune with the pressures facing a European car maker, can’t do the same?